Farallon Capital and Time Warner Cable
Farallon Capital initiated new positions in Covidien (COV), Hillshire Brands (HSH), and Allergan (AGN). The fund sold its positions in Time Warner Cable (TWC), Dollar General (DG), and SiriusXM Holdings (SIRI). The fund added to its positions in Safeway (SWY) and Coca-Cola Enterprises (CCE), while it lowered its stake in Charter Communications (CHTR) and eBay (EBAY).
Farallon exited its position in Time Warner Cable (TWC), which accounted for 4.93% of Farallon’s 1Q portfolio.
Time Warner Cable overview
TWC is among the largest providers of video, high-speed data, and voice services in the U.S. The company’s cable systems are mainly located in five geographical areas: New York, the Carolinas, the Midwest, southern California, and Texas.
Second quarter results miss estimates
The 2Q14 revenue grew 3.2% year-over-year to $5.7 billion. A 22.3% growth in business services revenue and a 12.8% growth in residential high-speed data revenue primarily drove this 2Q14 revenue growth. The adjusted diluted earnings per share (or EPS) increased 11.8% to $1.89, while the diluted EPS increased 7.3% to $1.76.
The average monthly revenue per residential customer relationship (or ARPU) grew 1.7% to $106.98. Residential high-speed data ARPU increased 9.7% to $46.92. TWC’s residential services revenue increased because of an increase in high-speed data revenue. Decreases in video and voice revenue partially offset the revenue increase. TWC saw a net decline of 152,000 residential video customers, but the company added 67,000 broadband Internet customers.
TWC management said that its business services revenue growth was primarily due to increases in high-speed data and voice subscribers, organic growth in cell tower backhaul revenue, and the $29 million revenue from DukeNet, which TWC acquired on December 31, 2013.
TWC lowers its revenue growth outlook over Dodgers TV dispute
TWC noted a 4.5% year-over-year increase in operating expenses due to higher programming and content costs associated with SportsNet LA, a regional network that carries the Los Angeles Dodgers’ baseball games and other sports programming in the residential services and other operations segments.
The company trimmed its revenue projections for 2014 because of disputes over carriage agreements with other multi-channel distributors such as DIRECTV. In 2013, TWC entered into a 25-year agreement valued at above $8 billion with the Dodgers to distribute SportsNet LA. The company took responsibility for advertising and sales to other distributors. The company said on the earnings call that it reduced its forecast for revenue growth to as low as 3.5% from 4.5%.
Comcast and TWC merger approved by shareholders
On October 9, 2014, Time Warner Cable announced that its stockholders have approved its merger with Comcast Corporation with more than 99% of votes cast in favor of the deal.
In February, Comcast (CMCSA) agreed to buy TWC for ~$45.2 billion. This deal will create the largest cable provider in the U.S., with more than 33 million subscribers. Upon completion of the merger, all of the outstanding shares of TWC will be cancelled. Each issued and outstanding share of TWC will be converted into a right to receive 2.875 shares of Comcast’s Class A common stock.
In the next part of the series we’ll discuss Farallon’s exit from Dollar General.